Foreign Currency Liquidity Risk Management at Japanese Major Banks: Efforts and Enhancement

Financial System and Bank Examination Department and Strategy Development and Management Bureau
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Financial System and Bank Examination Department: Bank of Japan
Strategy Development and Management Bureau: Financial Services Agency

No 24-E-3, Bank of Japan Review Series from Bank of Japan

Abstract: Securing stable foreign currency liquidity is one of the most important issues for Japanese major banks, as it is the basis of the expansion of their overseas businesses. The March 2023 banking turmoil in the United States and Switzerland shed new light on the importance of managing liquidity risk. Against this background, major banks have been enhancing their risk management through foreign currency liquidity stress testing based on more conservative and appropriate stress scenarios, early warning frameworks, and prompt and accurate liquidity data management. The Financial Services Agency and the Bank of Japan have supported these efforts through initiatives including joint surveys. As a result, major banks' resilience to foreign currency liquidity risk has steadily improved. However, there remains room for further enhancement. Going forward, banks are expected to continue their efforts to further enhance their risk management in line with changes in the risk profiles of their overseas businesses and the external environment.

Date: 2024-05-22
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-rmg
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